There's nothing especially new about inflation, nor should anyone up on their history be surprised to learn of its devastating consequences. Rulers need armies to rule and funds to pay for their troops' obedience and loyalty. Inflation is a convenient means of getting those funds. The Roman Empire provides a cautionary tale.
During the years between the rule of Augustus and Diocletian, Rome's troop numbers were in excess of doubling. They increased from 250,000 to 600,000. The extent such growth was inflation-funded is suggested by the fate of the denarius, the Roman currency, during this period. It suffered a debasement from the inflation of a long line of Roman rulers so extreme that upon Diocletian's taking power the once silver coin was a mere copper plated token. It fell to a mere one five-thousandth of its original value by A.D. 268. The economic results saw Roman trade start deteriorating into barter and the middle class eroding.
When Diocletian came to power, recognizing the worthlessness of the fiat currency, he demanded payment of taxes be in goods. He also imposed all manner of price, wage, production and anti-hoarding regulations ("hoarding" referring to those who simply preferred not to sell their goods in the corrupted market).
The most notorious and draconian of these measures was the famous A.D. 301 Edict. It decreed the death penalty for those who broke the law. Despite the resulting bloodshed, Rome's economic inflation-driven economic collapse continued. Inflation continued to run a muck. For example, in his A.D. 301 Edict, Diocletian set gold prices at 50,000 denarii per pound. However, by 337, the year of Constantine's death, a pound of gold was worth 20,000,000 denarii!
The last century of the Western Roman Empire was riddled with economic decay and social devolution. The market economy was abandoned by Romans in great numbers. The burden of the coercion to treat coins as possessing value that they simply did not have made rational economic decision making virtually impossible. Many fled the country - like latter day economic refugees. Others fled the cash economy into the countryside and took up voluntary serfdom. Common explanations in history books of feudalism arising after the fall of Rome have the chronology wrong. Feudalism arose, in the very bosom of Rome, as a perfectly rational response to a monetary economy crippled by a fiat currency verging on worthless.
While it would be simplistic to attribute the fall of Rome to any one cause, it is too often misunderstood that for the majority of the Roman lower class - a category into which much of the middle class had fallen - the barbarians who sacked Rome were not conquers, but liberators. The destruction of the Empire's economy played a major role in its political and military fall.
The lessons for today are all evident in that story. A good generated out of the market for common benefit is corrupted by power and coercion . Authorities, with the coercive ability to do so, turn the currency unit from a market valued commodity into an administratively decreed exchange module. A coin is required by law (by fiat) to be treated as being worth, say, what the market values as an ounce of gold, regardless of the fact that there is not - even absurdly less than - that much gold in the coin.
Predictably, rising prices escalate. After all, to survive in their businesses, producers and merchants must adjust their ledgers to the reality of a devalued currency that they are legally coerced to treat as possessing a make-believe value.
If further regulations are imposed to attempt to control these adjustments the entire collapse of the official economy is possible. Black markets become ubiquitous and people may even flee the monetary economy entirely.
In the good old days, though, when money was in the currency of coinage the creation of fiat currency involved elaborate and labor intensive efforts: e.g., re-minting coins with reduced precious metal content. Those days are gone, though. Once we arrive at the age of computerized money, when the Federal Reserve, and other such central banks, simply declare what the money supply is, inflation is too easy and tempting not to massively abuse the fiat and plunder the people.
Bear in mind that money is just a commodity, as subject to supply-and-demand pressures as is any other commodity. When the supply increases it results in lower per-unit demand. This results in falling prices. Falling prices normally are a good thing, but not when it's the price that producers and merchants put on your purchasing power.
Effectively, even just sitting cozily in your wallet, your dollars shrink whenever the central bank inflates the money supply. As there are more of them in circulation, each one is worth less, and so merchants need more to pay their suppliers, who need more to pay their producers, who need more to pay their suppliers (including labor) and so on.
Naturally, the rulers blame the rising prices on greedy bakers, bankers, merchants, businessmen, capitalists, corporations, Jews, whoever happens to be the popular whipping boy of the times. All this conveniently obscures the fact that the prices started rising in attempts to re-establish the market value of the money, which was destroyed by the ruler's inflation.
The more things change, the more they stay the same. The fiat currency-driven monetary systems of the United States and Europe look to be heading right down the Roman road to ruin. Have they learned nothing from history? It is a fair question, but probably the wrong one. It seems unlikely that the explanation lies in ignorance - more likely it lies in venality. The profits of inflation are too inviting to pass-up by the rulers. And, of course, they convince themselves it is for the common good. What human isn't susceptible to such self-serving myth making?
The human propensity for vanity doesn't seem likely to change any time soon. One wonders if submission to being bossed around and impoverished by maniacal rulers might, one day.
During the years between the rule of Augustus and Diocletian, Rome's troop numbers were in excess of doubling. They increased from 250,000 to 600,000. The extent such growth was inflation-funded is suggested by the fate of the denarius, the Roman currency, during this period. It suffered a debasement from the inflation of a long line of Roman rulers so extreme that upon Diocletian's taking power the once silver coin was a mere copper plated token. It fell to a mere one five-thousandth of its original value by A.D. 268. The economic results saw Roman trade start deteriorating into barter and the middle class eroding.
When Diocletian came to power, recognizing the worthlessness of the fiat currency, he demanded payment of taxes be in goods. He also imposed all manner of price, wage, production and anti-hoarding regulations ("hoarding" referring to those who simply preferred not to sell their goods in the corrupted market).
The most notorious and draconian of these measures was the famous A.D. 301 Edict. It decreed the death penalty for those who broke the law. Despite the resulting bloodshed, Rome's economic inflation-driven economic collapse continued. Inflation continued to run a muck. For example, in his A.D. 301 Edict, Diocletian set gold prices at 50,000 denarii per pound. However, by 337, the year of Constantine's death, a pound of gold was worth 20,000,000 denarii!
The last century of the Western Roman Empire was riddled with economic decay and social devolution. The market economy was abandoned by Romans in great numbers. The burden of the coercion to treat coins as possessing value that they simply did not have made rational economic decision making virtually impossible. Many fled the country - like latter day economic refugees. Others fled the cash economy into the countryside and took up voluntary serfdom. Common explanations in history books of feudalism arising after the fall of Rome have the chronology wrong. Feudalism arose, in the very bosom of Rome, as a perfectly rational response to a monetary economy crippled by a fiat currency verging on worthless.
While it would be simplistic to attribute the fall of Rome to any one cause, it is too often misunderstood that for the majority of the Roman lower class - a category into which much of the middle class had fallen - the barbarians who sacked Rome were not conquers, but liberators. The destruction of the Empire's economy played a major role in its political and military fall.
The lessons for today are all evident in that story. A good generated out of the market for common benefit is corrupted by power and coercion . Authorities, with the coercive ability to do so, turn the currency unit from a market valued commodity into an administratively decreed exchange module. A coin is required by law (by fiat) to be treated as being worth, say, what the market values as an ounce of gold, regardless of the fact that there is not - even absurdly less than - that much gold in the coin.
Predictably, rising prices escalate. After all, to survive in their businesses, producers and merchants must adjust their ledgers to the reality of a devalued currency that they are legally coerced to treat as possessing a make-believe value.
If further regulations are imposed to attempt to control these adjustments the entire collapse of the official economy is possible. Black markets become ubiquitous and people may even flee the monetary economy entirely.
In the good old days, though, when money was in the currency of coinage the creation of fiat currency involved elaborate and labor intensive efforts: e.g., re-minting coins with reduced precious metal content. Those days are gone, though. Once we arrive at the age of computerized money, when the Federal Reserve, and other such central banks, simply declare what the money supply is, inflation is too easy and tempting not to massively abuse the fiat and plunder the people.
Bear in mind that money is just a commodity, as subject to supply-and-demand pressures as is any other commodity. When the supply increases it results in lower per-unit demand. This results in falling prices. Falling prices normally are a good thing, but not when it's the price that producers and merchants put on your purchasing power.
Effectively, even just sitting cozily in your wallet, your dollars shrink whenever the central bank inflates the money supply. As there are more of them in circulation, each one is worth less, and so merchants need more to pay their suppliers, who need more to pay their producers, who need more to pay their suppliers (including labor) and so on.
Naturally, the rulers blame the rising prices on greedy bakers, bankers, merchants, businessmen, capitalists, corporations, Jews, whoever happens to be the popular whipping boy of the times. All this conveniently obscures the fact that the prices started rising in attempts to re-establish the market value of the money, which was destroyed by the ruler's inflation.
The more things change, the more they stay the same. The fiat currency-driven monetary systems of the United States and Europe look to be heading right down the Roman road to ruin. Have they learned nothing from history? It is a fair question, but probably the wrong one. It seems unlikely that the explanation lies in ignorance - more likely it lies in venality. The profits of inflation are too inviting to pass-up by the rulers. And, of course, they convince themselves it is for the common good. What human isn't susceptible to such self-serving myth making?
The human propensity for vanity doesn't seem likely to change any time soon. One wonders if submission to being bossed around and impoverished by maniacal rulers might, one day.
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